Bad diversity versus good diversity

Diversity again is a hot-button issue. For instance, the Harvard Business Review opened 2016 with an essay about diversity programs and policies in industries from Silicon Valley to Hollywood, noting that “mission statements and recruiting materials touting companies’ commitment to diversity are ubiquitous.” Similarly, Anna Holmes wrote in theNew York Times Magazine in October about “the recent ubiquity of the word” and how its meaning has been confused by “overuse, imprecision, inertia and self-serving intentions.”

I have been struck by one aspect of the discussion: the commonly accepted premise that the relevant end is some measure of inclusion for particular groups in particular areas, like a cartel’s allocation of market shares, to the near-exclusion of whether the process expands society’s well-being or increases its balkanization. That is a crucial omission, given that diversity can provide either an excuse for a cage fight among groups for special treatment or an opportunity for mutual benefits.

That premise is revealed by the zero-sum nature of so much diversity rhetoric, in which gains for one group are presumed to necessarily come at others’ expense, justifying imposing harm on them as a necessary and acceptable part of the process.

Unfortunately, the disparate treatment typically called for would reinforce rather than reduce divisions between groups. And the further fraying of social relations would undermine the most productive mechanism that exists for jointly advancing the interests of our diverse population: mutually beneficial voluntary market arrangements.

Free markets, founded on respect for individuals’ rights to themselves and their property, enable diversity to provide shared gains, facilitating cooperation among different people, while coerced diversity relies on imposing harm on others, crowding out cooperation. Given how often the argument for diversity requirements is based on some past violation of some group’s rights, one would think this distinction would be stressed rather than overlooked.

Individuals’ diverse tastes, backgrounds, cultures, experiences, circumstances, etc., produce differences in the subjective values that people place on goods and services. Market exchange allows all to benefit from those differences because it provides benefits that exceed costs for both parties. Thus when property rights are respected, divergent values lead to exchanges that increase the well-being of all involved, with no one’s choices overridden by force.

In contrast, the special treatment inherent in coercively imposed diversity raises the payoffs for manipulating the inherently arbitrary system, rather than being honest and trustworthy, which forms the foundation of mutually productive voluntary market arrangements (e.g., Elizabeth Warren’s claimed Native American heritage at Harvard).

Different ideas and customs are important sources of innovation as well. Asking, “Could what that person, group, or organization is doing work better for me in my circumstances than what I am doing now?” triggers communication, evaluation, application, imitation, and modification that turn diversity into benefits for others. That is why trade hubs have always been centers of entrepreneurship and advancement, and cities have been incubators for vast innovation. But those highly creative and productive interactions often wither when relationships are imposed rather than voluntary.

Free markets also produce mutual benefits from our constantly changing world. Our diversities in uncountable dimensions lead some to learn new useful information before others. When such discoverers act on that information in markets – for example, by buying more of a good discovered to have greater value – they communicate changed relative scarcities more quickly and accurately than otherwise. Better information means fewer mistakes, benefitting all. But the increased separatism and distrust produced by imposed diversity reduces openness to peaceful relationships and incentives to seek out and communicate such information.

Addressing diversity by imposing special treatment for some at others’ expense generates divisiveness and conflict rather than cooperation and mutual benefits. Americans should remember British Rabbi Jonathan Sachs’ maxim that “it is through exchange that difference becomes a blessing, not a curse,” and focus on advancing voluntary arrangements, in which our differences allow us to better serve each other’s peaceful ends.

Gary M. Galles is a research fellow with the Independent Institute in Oakland and an economics professor of economics at Pepperdine University.

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